Three hidden costs of the foreclosure crisis

The country’s foreclosure problem is only halfway over: CRL

CHICAGO (MarketWatch) — Recent statistics show foreclosure activity is declining, but the nation’s foreclosure problem is far from over. What’s more, the drawn-out foreclosure crisis has lasting consequences for those who have lost their homes as well as the communities surrounding them.

Five million foreclosures have occurred since 2007, according to the Center for Responsible Lending, a nonprofit that works to protect homeownership by fighting predatory lending practices. And the crisis is only halfway over: There are 3 million to 5 million more foreclosures expected in the next couple of years, according to the center’s best estimate.

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To get an idea of the magnitude of the problem and just how the volume of foreclosures compares to more normal times, consider this: In 2003, before the housing bubble, one out of every 38 homeowners in the country were seriously delinquent (90 days or more past due on their mortgage payments) or in foreclosure. Today, one out of 10 are seriously delinquent or in foreclosure, according to the CRL.

Some of the fallout from the foreclosure crisis has been obvious. The displacement of families. Crime issues, as properties go vacant. Shattered credit scores, which can make it harder to rent a home or even get a job. Falling home prices and the loss of equity for homeowners, requiring them to make tough decisions about retirement or funding a child’s college education.

Other repercussions are less obvious.

“The bad thing about this recession: It’s been long and deep. One of the interesting things is that it has given people time to look at the secondary effects of things,” said Bruce Lesley, president of First Focus, an advocacy group aiming to make children and families a priority in federal policy and budget decisions.

Below are a few of the lesser discussed costs of the foreclosure crisis.

Foreclosure kids

Eight million children, or one in 10 kids, will be affected by the foreclosure crisis by the time it’s over, according to a new report from First Focus. That includes both children of homeowners as well as children of renters who were evicted due to a foreclosure, according to the report.

The state where children are most affected is Nevada, where 19% of children are impacted by a foreclosure.

The report’s author, Julia Isaacs, of the Brookings Institution, called children the “invisible victims” of the foreclosure crisis. It’s easy to see why: Besides the emotional trauma of having to leave the home, foreclosures have real implications for a child’s educational development, according to the report.

“Dislocation in housing is like missing a whole month of school. The chances of being held back, the chances of dropping out increase dramatically,” Lesley said. Every forced move means a child’s reading and math scores drop as much as they would have if they were absent for a full month, according to the report.

A child’s health is also affected by a foreclosure, as nutrition might become less of a priority for a cash-strapped family and visits to the family doctor can become more infrequent. Plus, parents under stress may adopt harsher or less-supportive parenting habits, the report said.

Health implications

Of course, health issues can go hand in hand with foreclosure for adults and children alike.

A recent study found a correlation between the increase in foreclosures and the increase in medical visits for mental health, preventable conditions and stress-related complaints. Mental health visits might include anxiety or suicide attempts and preventable conditions might include hypertension.

The researchers, Janet Currie, of Princeton University, and Erdal Tekin, of Georgia State University, looked at data on foreclosures, emergency room visits and hospitalizations in Arizona, California, Florida and New Jersey — four states hit hard by foreclosures.

They found that in communities with high foreclosure rates, people are more likely to seek treatment in hospitals and emergency rooms for conditions including heart attacks, strokes, mental health conditions and preventable conditions like hypertension.

“Our estimates imply that the 2.82 million foreclosures in 2009 led to 4.18 million additional nonelective hospital and ER visits among those aged less than 65,” the authors wrote in their report. At an estimated average $2,521 per visit, that’s a total of $10.5 billion spent on additional visits just in 2009.

Less community policing

The loss of property tax revenue due to foreclosures has affected the budgets of many communities, said James Brooks, program director of community development and infrastructure for the National League of Cities. That leads to cuts in services, from swimming pools to senior centers.

Law enforcement is often the last public service to face budget cuts, he said. “From what we’ve seen, the public safety sector is the last to face the music of diminished budget revenues. However, what we have seen is cities not filling vacancies that result from retirements,” Brooks said.

In many communities, budget cuts to law enforcement mean that officers are pulled out of special assignments and sent back to patrol, said John Firman, director of the research center at The International Association of Chiefs of Police. For example, that means less community policing, which affords officers to gain intelligence about neighborhoods, or it could mean the loss of an officer assigned to a school, Firman said.

At the same time, vacant foreclosure properties are destabilizing neighborhoods. The buildings themselves can be a magnet for crime. But even more than that, it’s a tenet of community policing that a neighborhood with a rundown appearance can signal to criminals that crime is tolerated there, creating a “cycle of criminalization,” Firman said.

That’s the sad truth in how foreclosures are affecting police departments. “The very thing that is reducing resources to the police is simultaneously increasing policing demand,” he said.

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